scholarly journals THE EFFECT OF VOLUNTARY IFRS ADOPTION BY UNLISTED FI RMS ON EARNINGS QUALITY AND THE COST OF DEBT: EMPIRICAL EVIDENCE FROM KOREA

2015 ◽  
Vol 16 (5) ◽  
pp. 931-948 ◽  
Author(s):  
Young Hwan Lee ◽  
Sun A. Kang ◽  
Sang Min Cho
Keyword(s):  
Financial Reporting ◽  
Earnings Quality ◽  
Sample Selection ◽  
Discretionary Accruals ◽  
Cost Of Debt ◽  
Cross Sectional ◽  
Listed Firms ◽  
Ifrs Adoption ◽  
The Cost ◽  
Unlisted Firms

The present study empirically examines how voluntary International Financial Reporting Standards (IFRS) adoption influences the earnings quality and the cost of debt of unlisted firms in Korea. Since 2011, when the adoption of IFRS by listed firms became mandatory, more unlisted firms have adopted IFRS voluntarily, improving the transparency and reliability of their accounting information. Using the sample of unlisted firms with 3year study period of preand post-IFRS adoption, we examine whether IFRS voluntary adopters show both lower discretionary accruals and the cost of debt than those of non adopters, and whether both discretionary accruals and the cost of debt of voluntary adopters decrease after IFRS adoption. We employ the Heckman's two stage approach in order to avoid sample selection bias and cross sectional pooled OLS regression with or without clustering test. We complimentary report the results from firm-fixed effect panel model to generalise the results. The results show that firms which adopt IFRS have a higher earnings quality and a lower cost of debt that those which do not. These findings suggest that when unlisted firms issue bonds and borrow money, IFRS adoption contributes to decreasing the cost of debt.

Voluntary IFRS Adoption by Unlisted European Firms: Impact on Earnings Quality and Cost of Debt

2020 ◽  
Vol 55 (03) ◽  
pp. 2050013
Author(s):  
Mara Cameran ◽  
Domenico Campa
Keyword(s):  
Financial Reporting ◽  
Positive Impact ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Cost Of Debt ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
The Cost ◽  
The Impact ◽  
Unlisted Firms

This paper investigates the impact of the voluntary adoption of International Financial Reporting Standards (IFRS) by unlisted firms on both their financial reporting quality and cost of debt. Using a large international sample of unlisted EU companies for which the choice of IFRS is voluntary, we find that IFRS adoption has a positive impact on financial reporting quality and results in a decrease in the cost of debt. In addition, unlisted firms adopting IFRS are more likely to be acquired or go public in the years subsequent to the adoption, relative to other unlisted firms. We document a tangible benefit of voluntary IFRS adoption by unlisted firms.

How Would the Mandatory Adoption of IFRS Affect the Earnings Quality of U.S. Firms? Evidence from Cross-Listed Firms in the U.S.

2011 ◽  
Vol 25 (4) ◽  
pp. 837-860 ◽  
Author(s):  
Jerry Sun ◽  
Steven F. Cahan ◽  
David Emanuel
Keyword(s):  
Earnings Quality ◽  
Discretionary Accruals ◽  
Earnings Persistence ◽  
Listed Firms ◽  
Ifrs Adoption ◽  
The Cross ◽  
The Impact ◽  
Timely Loss Recognition ◽  
The U.S

SYNOPSIS We examine the impact of IFRS adoption on the earnings quality of foreign firms cross-listed in the U.S. from countries that have already adopted IFRS on a mandatory basis. We use the cross-listed firms as surrogates for the U.S. firms so we can observe the effect of IFRS adoption in the U.S. We examine five measures of earnings quality related to discretionary accruals, target beating, earnings persistence, timely loss recognition, and the earnings response coefficient (ERC). To isolate the effect of IFRS adoption, we use a matched sample design where each cross-listed firm is matched to a U.S. firm. We find the difference in earnings quality from the pre- to post-IFRS period is not different for the cross-listed and matched firms when earnings quality is measured by absolute discretionary accruals, timely loss recognition, or a long-window ERC. However, for the incidence of small positive earnings and earnings persistence, we find significant difference-in-differences, indicating that IFRS adoption led to an improvement in earnings quality for cross-listed firms relative to the matched firms. Our results are slightly surprising since U.S. GAAP is generally viewed as high-quality standards with little room for improvement.

scholarly journals The Effect Of IFRS Non-Audit Consulting Services On Cost Of Debt: Evidence From Korea

2015 ◽  
Vol 31 (5) ◽  
pp. 1889
Author(s):  
Seung Uk Choi ◽  
Woo Jae Lee
Keyword(s):  
Interest Rate ◽  
Financial Reporting ◽  
Credit Rating ◽  
Financial Statements ◽  
Cost Of Debt ◽  
Reporting Standards ◽  
Listed Firms ◽  
Financial Reporting Standards ◽  
Consulting Services ◽  
The Cost

Korean listed firms have been required to disclose their financial statements based on the International Financial Reporting Standards (IFRS) since 2011. Using pre- and post-IFRS reporting periods, we investigate the relation between IFRS non-audit consulting services provided by incumbent auditor and the cost of debt of its client for firms in the Korean Stock Market. We find evidence that IFRS non-audit consulting services are related to the decrease in cost of debt only during the post-IFRS period. In particular, receiving non-audit consulting services is positively associated with a clients bond credit rating and negatively associated with interest rate. The result generally holds when we use alternative proxies of IFRS non-audit consulting services. Finally, our results are robust to potential endogeneity issues in selecting non-audit services.

scholarly journals The effects of the International Financial Reporting Standards (IFRS) adoption on earnings quality: evidence from Korea

2017 ◽  
Vol 14 (3) ◽  
pp. 243-250
Author(s):  
Jee Hoon Yuk ◽  
Wook Bin Leem
Keyword(s):  
Financial Reporting ◽  
Institutional Environment ◽  
Earnings Quality ◽  
Financial Statements ◽  
Consolidated Financial Statements ◽  
Listed Firms ◽  
Financial Reporting Standards ◽  
Ifrs Adoption

This study investigates whether earnings quality of Korean listed firms was substantially improved after the IFRS adoption in long-term aspect and which firms listed in KOSPI or KOSDAQ market had been more enjoyed the benefit. Prior studies related to this subject don’t provide consistent results and have a limitation of insufficiency of research periods. Therefore, this study analyzes the positive effect of the IFRS adoption in Korea using long-term based approach and comparative analysis on each Korean stock market. Furthermore, this study considered Korean specific institutional environment in which main financial statements prepared and disclosed by listed firms were changed from individual financial statements to consolidated financial statements after the IFRS adoption. Results of the study found that earnings quality of Korean listed firms had been significantly improved during 5 years after the IFRS adoption. In addition, earnings quality on consolidated financial statements of KOSDAQ listed firms has improved more than that of KOSPI listed firms. The results provide meaningful implications to evaluate the effects of IFRS adoption on earnings quality and to assess accomplishment of fundamental purpose of the IFRS adoption in Korea.

scholarly journals Earnings quality and the cost of debt for SMEs under severe information asymmetry

2021 ◽  
Vol 10 (3) ◽  
pp. 128-139
Author(s):  
Pietro Fera ◽  
Gianmarco Salzillo
Keyword(s):  
Financial Reporting ◽  
Private Information ◽  
Global Financial Crisis ◽  
Earnings Quality ◽  
Cost Of Debt ◽  
Negative Consequences ◽  
Accounting Data ◽  
Abnormal Accruals ◽  
The Cost ◽  
The Impact

The banking system has undergone substantial changes that boosted the relevance of transaction-lending technologies and the role of financial reporting in the bank-firm relationship. Due to the growing emphasis on accounting data, this study investigates the impact of earnings quality on the cost of debt for a sample of SMEs during the global financial crisis. Relying on a sample of Italian non-financial SMEs, empirical findings show a positive relationship between discretionary accruals and the cost of loans, highlighting the negative consequences of low-quality earnings. Further analysis reveals the different impacts that negative and positive abnormal accruals can have on the cost of debt: low values of the former can convey private information and positively affect the response variable, which shows a positive and quadratic relationship with the latter. These findings confirm the increasing importance of hard information in credit markets and point out the significant impact of the quality of the borrowers’ earnings on the cost of debts. However, the distinctiveness of the study from the previous literature relies on evidence that, even during a credit crunch period, financial institutions weigh up the expected return from lending transactions, relying on both the sign and the magnitude of discretionary abnormal accruals as a vehicle to get firms’ private information.

ERP Systems and Earnings Quality: The Impact of Dominant Shareholdings in China

2016 ◽  
Vol 13 (2) ◽  
pp. 49-69
Author(s):  
Songsheng Chen ◽  
Ling Harris ◽  
Jiao Lai ◽  
Wenying Li
Keyword(s):  
Financial Reporting ◽  
Earnings Quality ◽  
Discretionary Accruals ◽  
Erp Systems ◽  
Absolute Value ◽  
Listed Firms ◽  
Enterprise Resources Planning ◽  
Post Test ◽  
The Absolute ◽  
The Impact

ABSTRACT Using a sample of ERP adopters among Chinese publicly listed firms and a one-group pre- and post-test design, this study examines the impact of dominant shareholdings on the relationship between Enterprise Resources Planning (ERP) systems and earnings quality. We use the absolute value of discretionary accruals as a proxy for earnings quality. We predict and find that as the dominant shareholdings increase, Chinese firms show a decrease in the absolute value of total discretionary accruals after ERP implementations. Furthermore, we find that after ERP implementations, discretionary short-term accruals decrease with higher dominant shareholdings, while discretionary long-term accruals increase with higher dominant shareholdings. Our study contributes to research and practice by documenting that dominant shareholdings in China can influence the impact of ERP implementations on earnings quality, suggesting that dominant shareholdings may induce dominant shareholders' self-serving incentives to influence firms' financial reporting via ERP implementations.

scholarly journals Toward Sustainable Accounting Information: Evidence from IFRS Adoption in Korea

2019 ◽  
Vol 11 (4) ◽  
pp. 1154 ◽  
Author(s):  
Woo Jae Lee
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Small Firms ◽  
Earnings Quality ◽  
Accounting Information ◽  
Financial Statement ◽  
Listed Firms ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
The Past

The harmonization of accounting standards has been an international trend in the past two decades. As of 2018, 144 of 166 profiled jurisdictions require the use of International Financial Reporting Standards (IFRS). Nevertheless, there is mixed evidence on the effect of IFRS on sustainable accounting information. This study examines whether IFRS adoption improves earnings sustainability, focusing on emerging markets. Specifically, it tests the effect of IFRS on earnings quality by comparing earnings management and financial statement comparability of Korean listed firms for the pre- and post-IFRS periods. The results show that firms report less managed earnings in the post-IFRS period than in the pre-IFRS period. Furthermore, the results suggest the enhancement of financial statement comparability in the post-IFRS period compared to the pre-IFRS period. In particular, this paper documents that the effect of IFRS on sustainable accounting information is more pronounced in competitive industries. Moreover, it shows that small firms benefit more from adopting IFRS. Overall, this study finds that IFRS adoption in Korea improves the overall sustainability of accounting information.

The Impact of Eliminating the 20-F Reconciliation on the Cost of Debt: An Exploratory Study

2019 ◽  
Vol 18 (1) ◽  
pp. 47-70
Author(s):  
Lucy Huajing Chen ◽  
Saiying Deng ◽  
Parveen P. Gupta ◽  
Heibatollah Sami
Keyword(s):  
Financial Reporting ◽  
Positive Association ◽  
Cost Of Debt ◽  
Yield Spread ◽  
Cross Sectional ◽  
Country Level ◽  
Bond Yield ◽  
The Cost ◽  
The Impact ◽  
The U.S

ABSTRACT In 2007, the U.S. Securities and Exchange Commission voted to eliminate the 20-F reconciliation requirement for foreign issuers listing their stocks or bonds in the U.S. capital markets and preparing their financial statements under International Financial Reporting Standards (IFRS). Distinct from prior research focusing on the equity market, we investigate the impact of eliminating the 20-F reconciliation on the cost of debt in the U.S. listed foreign bond market. Employing a difference-in-differences approach, we document that bond yield spread increases for foreign IFRS bond issuers after the elimination of 20-F reconciliation. The results suggest that bondholders, on average, view the elimination of 20-F reconciliation as an information loss. Cross-sectional analyses reveal that the positive association between the elimination of 20-F reconciliation and bond yield spread is more pronounced for firms with greater stock return volatility, lower institutional ownership, weaker reporting incentives, and higher country-level investor protection. JEL Classifications: M41; G15; G18.

scholarly journals The Impact of IFRS Adoption on Earnings Quality: A Study Conducted on Foreign Issuers in the United States

2015 ◽  
Vol 8 (11) ◽  
pp. 139 ◽  
Author(s):  
Priscilla Samantha Den Besten ◽  
Georgios Georgakopoulos ◽  
Konstantinos Z. Vasileiou ◽  
Nikolaos Ereiotis
Keyword(s):  
United States ◽  
Financial Reporting ◽  
Earnings Quality ◽  
Discretionary Accruals ◽  
The United States ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
The Us ◽  
The Difference ◽  
The Impact

<p>The worldwide adoption of International Financial Reporting Standards (IFRS) is affecting many countries around the globe as it has become widely spread. Since 2007 the United States (US) allows foreign issuers to voluntarily adopt IFRS. This paper investigates the effect of IFRS adoption on earnings quality after voluntary IFRS adoption was allowed to foreign issuers in the US. More precisely, the discretionary accruals and the small positive earnings are tested for a sample of foreign issuers in the US that are registered and reporting with the SEC, comparing a pre-period from 2002 to 2006 with a post-period from 2008 to 2011. The results from the difference-in-differences regression analysis suggest that in terms of discretionary accruals there is no statistical difference between the pre-IFRS and the post-IFRS period, therefore the earnings quality remains the same. For small positive earnings it is found that, when foreign issuers incorporate IFRS, these are lower, indicating higher earnings quality.</p>

scholarly journals IFRS adoption and investor perceptions of earnings quality: evidence from Korea

2018 ◽  
Vol 15 (1) ◽  
pp. 26-34
Author(s):  
Heejeong Shin ◽  
Su-In Kim ◽  
Sangmi Kim
Keyword(s):  
Stock Returns ◽  
Financial Reporting ◽  
Earnings Quality ◽  
Information Risk ◽  
Listed Firms ◽  
Earnings Information ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
The Difference ◽  
New Perspective

This study examines the consequences of International Financial Reporting Standards (IFRS) adoption in terms of the investor perception of earnings quality in the Korean stock market. Building on evidence from Ecker et al. (2006) suggesting that return-based earnings quality (E-loading), as captured by the sensitivity of stock returns to accounting information risk, accurately represents investor perceptions of earnings information risk, the authors examine whether E-loading is different between the pre- and post-IFRS adoption periods. Using KSE-listed firms from 2006 to 2014, the authors find the evidence that the extent of stock return sensitivity to information risk embedded in financial statements is greater in the period of post-IFRS adoption than in the period of pre-IFRS adoption. This finding indicates that even though accounting-based earnings quality improves after the adoption of IFRS, investors perceive earnings information after the adoption of IFRS as riskier than before. In addition, the difference in investor perception is more pronounced for firms with low accruals quality as captured by discretionary accruals, indicating that the effect of IFRS adoption on return-based earnings quality is distinctive from that on accounting-based earnings quality. The paper contributes to the literature on IFRS by exploring the effect of IFRS adoption through a new perspective on earnings quality in capital market.

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